Beauty's In The Eye of the BTC-holder
April 6, 2022
Welcome to the M31 Capital Investor Newsletter! We use this platform to share monthly updates on the industry, our views on the broader market, important crypto-native metrics, as well as to highlight specific DeFi & Web3 protocols we find interesting.
We at M31 Capital have staked our careers and our reputations on the success of this technology. As always, we thank you for putting your trust in us and for your support of this new asset class. Please feel free to reach out to our Investor Relations team with any questions, ideas, feedback, or just to say hi: contact@m31.capital.
Nathan Montone
Chief Executive Officer
M31 Capital Management, LLC
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Sponsored by: Blockware Solutions
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March Performance
Market highlights and rationale from a selection of the most interesting assets in the industry:
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(NOTE: M31 Capital may hold positions in the tokens listed)
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P A R T N E R H I G H L I G H T S
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M31 Capital is currently accepting new investors globally
We are open to qualified U.S. & non-U.S. investors
(including self-directed IRAs)
The Fund will accept new subscriptions on the 1st of the month
Contact us to see if you qualify
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Bad News = Good News
Sentiment and prices turned positive in March *despite* failed ceasefire talks in Ukraine and a mid-month rate hike.
But when markets stop falling on bad news (or especially when they rise), it's generally a good indication the negative catalysts have already been priced in...
The DeFi, Web3, and Privacy sectors were top performers as Russia's kinetic war expanded into an all-out economic & cyber war.
And, as we covered in From Russia With Love, the increase in financial censorship and internet restrictions is leading to a direct increase in usage of Privacy & Web3 tech.
Dare I say fundamentals... matter??
In particular, Zcash (Privacy), Arweave (Web3), and Sentinel (Privacy + Web3) saw big increases in price action driven by user activity early in the month.
On the other end, the Gaming, NFTs, and Metaverse sectors were the poorest performers, as they had nothing to do with these trends. Though another example of Bad News = Good News, since declining sector correlations signal the market is starting to find its footing.
- Total Market Cap: $2.1 Trillion (+9.6%)
- BTC Dominance: 41.4% (-5.3%)
- DeFi TVL: $230bn (+19.4%)
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Supporting Innoflation
In the U.S., President Biden's long-awaited Executive Order on cryptocurrencies proved more supportive than expected, focusing on the need for America to support innovation in order to remain globally competitive.
Inflation numbers came in at 7.9%, the highest print in 40 years, causing the Fed to hike rates 25bps and reiterate their focus on cooling down inflation.
But markets loathe uncertainty more than anything else, so despite the outrageously high CPI print and corresponding rise in rates, the market welcomed the certainty of it and sent assets higher.
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DeFi Renaissance?
Two big movers this month were RUNE & LUNA as Terra's DeFi ("TeFi") ecosystem exploded with the launch of new Terra-based DeFi dapps: Mars Protocol, Astroport, Prism, White Whale, Kujira, and others.
This was boosted by a successful and highly anticipated integration with THORChain (RUNE), the first ever crosschain DEX, which now enables connections between Terra and other L1 blockchains like Bitcoin & Ethereum with no 3rd party.
Terra quickly rose to become the #2 DeFi chain by TVL ($23bn locked), second only to Ethereum, and more than doubled THORChain's native swap volume to over $5bn.
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PoS-itive Developments
DeFi more broadly was on fire last month. Specifically, DeFi 1.0 assets like Aave have been making big comebacks (we called out the DeFi Renaissance here), in part related to renewed enthusiasm over the Ethereum network's progress.
After a successful test of the Merge on the Kiln testnet, Ethereum finally looks ready to shift from Proof-of-Work to Proof-of-Stake, which will end hardware mining of ETH and instead route mining revenue to users who stake their ETH with validators.
By switching to PoS, the Merge will incentivize large amounts of ETH offline into staking contracts where they'll secure the network and earn ~10% APY for doing so.
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Excitement over PoS has since been ramping up, causing a mass exodus of ~10m ETH (~$25bn) out of centralized exchanges and into the ETH 2.0 staking contracts.
Liquid staking protocols like Lido have been rallying in response despite relatively weak value accrual and tokenomic design...
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TL;DR
The market appears to be turning around. DEX volumes & open interest are signaling the return of bullish sentiment, macro is notably having less of an impact than onchain activity & fundamentals, there's a healthy decline in correlation between subsectors, and big potential exogenous risk factors like the Executive Order have been taken off the table entirely.
On top of this, upcoming positive catalysts like the ETH Merge are renewing excitement over the #2 L1 as well as for impacted sectors like DeFi where user activity and TVL are once again booming.
Historically, April is crypto's 2nd highest returning month of the year (#1 is Nov), ending in the green 91% of the time since 2011 with an average monthly return of +37.3%.
Looks like even tax month is Bad News = Good News!
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N A R R A T I V E F O C U S
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Beauty's In The Eye of the BTC-holder
Story time... when I started falling down the Bitcoin rabbit hole in late 2011 & early 2012, I had many heated debates with a self-avowed Communist friend over whether Bitcoin was hyper-Capitalist or hyper-Communist tech.
- He saw Bitcoin as the tangible expression of core Marxist principles: a mechanism for putting the means of (monetary) production in the hands of the workers, the people's revolution, etc. A deeply political technology.
- I saw Bitcoin as the ultimate free market, more aligned with the Austrian School: Zero barriers to entry, non-interventionism, open-source competition, rejection of artificial stimulants (e.g. low interest rates or high supply expansion). A credibly neutral, deeply apolitical technology.
What we agreed on, however, was that BTC was a very powerful and fundamentally new type of asset with the potential to disrupt the global monetary order and dramatically skew the balance of power away from institutions and toward individuals.
Of course, the rest of the world saw it as Chuck E. Cheese tokens for internet geeks...
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But one thing's for sure: after Russia invaded Ukraine, no one could say BTC was useless...
Russia started mining BTC and made a global offer to price oil & gas exports in BTC.
Ukraine has been leaning on BTC for humanitarian aid as well as a Store of Value helping refugees flee with assets beyond what they could physically carry.
The wild thing is that the real world use cases for Bitcoin have arrived and they're coming from BOTH sides of the war!
Russia for censorship-resistance; Ukraine for Store-of-Value.
Like my Communist friend and I, Russia & Ukraine can violently disagree on just about everything yet still both find equal value in a permissionless, global, digital store of value.
MOAR BTC
Which is why you shouldn't waste your time (like I did) debating whether BTC fits better into a framework of "The Left" or "The Right".
The far more important fact is that everyone - on every side of every aisle - benefits immensely from it.
Which is why over just the last month we've seen so many people, companies, and countries desperate to get their hands on more sats:
- Luna Foundation Guard aims to be the world's largest BTC holder - buys $1.5bn of BTC to back UST stablecoin with "pristine collateral"
- Newly launched CitadelDAO aims to accumulate the world's largest community-owned BTC treasury
- Microstrategy & founder Saylor aim to be the world's largest BTC holders - used BTC as "pristine collateral" for a $205m loan... to buy more BTC
- Silvergate, the bank who funded the loan, is eager to accept BTC as "pristine collateral"
- Public BTC mining firm, Riot Blockchain, files to sell $500m of equity so they won't have to sell their BTC
- Both "Shrimp" (<1 BTC) & "Whale" (>1k BTC) wallets have been accumulating large amounts of BTC recently
- Russia wants BTC, not USD, in return for their oil & gas exports
- El Salvador wants BTC, not Gold, to support their currency
- Ukraine wants BTC for humanitarian aid, funding their resistance efforts, and to enable citizens to flee with their wealth in tact
- Democratic U.S. President Joe Biden says America should support BTC innovation
- Republican U.S. Senator Cynthia Lummis says America should put BTC on its balance sheet
No one can get enough! People, projects, companies, and countries are now competing to own the most BTC.
They all have different politics, economic objectives, cultural values, and motives, but they all agree on BTC.
(please note that no one is competing for XRP...)
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The Only Constant is Bitcoin
This intense, targeted demand for Bitcoin is a natural part of the Circle of Life in crypto... a cycle we've seen play out more times than we can count over the past 10 years.
The specific project names change (with the important exception of BTC), but here's how the cycle plays out:
- Capital flows into Bitcoin (or BTC + ETH)
- Rotates to Large Caps (e.g., SOL, LUNA)
- Trickles down to Small Caps (e.g., DOGE)
- **Market crashes 80-90%**
- Capital flows back to Bitcoin
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When everyone rushes back to BTC (as they are now) after the crypto market crashes (as it just did in Q1), it historically marks the end of the Bear and beginning of the Bull.
Right now, the fact that so many people, political parties, countries, companies, and communities are flocking to BTC may be a signal the bottom is in.
And this time, the Demand/Supply ratio has never looked better... the 19 millionth BTC was just mined last week, meaning it has never been more difficult to increase the supply of BTC in circulation.
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It took 13 years to mine the first 19M BTC, but will take another 118 years to mine the final 2M BTC!!
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Conclusion
So, does the fact that BTC is used by both sides of the political aisle make it hyper-political or anti-political? Is it more Communist or Capitalist? Means of (monetary) production for the Marxist workers or the ultimate free market asset for the Libertarians?
Truth is, my friend and I were both right, because: Bitcoin is for *everyone*
And whether you like it or not, BTC benefits all who use it: the Left and the Right, institutions and individuals, Russia and Ukraine.
And that's the beauty.
If you are interested in investing with M31 Capital, visit this page to access our subscription materials.
You can also reach our Investor Relations team at: contact@m31.capital
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P R O T O C O L H I G H L I G H T
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In our ongoing effort to be a value-add educational resource for our investors, we include a section in each newsletter highlighting an interesting or important part of the crypto ecosystem
Astroport (ASTRO)
Since Astroport launched in December 2021, its trade volume and TVL have exploded to take 85% market share, overtaking TerraSwap as the #1 DEX on Terra.
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Growing Among DeFi
Astroport is now the #4 DEX across all of DeFi. Remarkable for a protocol siloed on the Terra blockchain, lacks EVM compatibility, and only launched 4 months ago!
Looking at trade volume, revenue, and emissions schedule, Astroport’s fundamentals are second only to Uniswap, the dominant DEX on Ethereum.
In fact, on a P/E and P/S basis, Astroport is undervalued compared to other top DEXs. With a 2.2x P/S ratio, and a 6.7x P/E ratio, ASTRO trades like a low growth stock, despite being one of the fastest growing protocols and generating more protocol revenue than Uniswap!
On an annualized revenue basis, the protocol is projected to generate ~$200m, higher than Sushiswap, TraderJoe, Osmosis, and even Curve, with 34% of this value flowing toward ASTRO stakers.
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(Data above assumes 33% of total revenue to Uniswap and Osmosis as protocol fees)
One downside is Astroport’s high fully diluted value, however, with ~50% of the total supply emitting over the next 69 years and no major upcoming unlocks, FDV won't be a relevant factor for a very long time.
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Conclusion
Considering protocols like Uniswap, and Curve have been around for several years, established themselves in the biggest DeFi ecosystem (Ethereum - 58% by TVL), and proved their value proposition as key innovators and components in the growth of DeFi, it is impressive that Astroport has been able to stack up volumes, revenues, and growth projections that match or exceed these competitors.
As demand for UST (and TeFi) grows and Astroport becomes the hub for liquidity for all TerraFi ecosystem projects, we can see the current numbers growing radically and could quickly see Astroport establish itself as one of the key DEXs not only within the Terra Ecosystem, but across the entire DeFi industry.
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If you want to start working at a Web3 project today, take a look at M31 Capital's Jobs Board to see opportunities at some of our token investments.
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W H A T W E ' R E R E A D I N G
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A selection of our favorite longform content this month:
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U P C O M I N G E V E N T S
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The M31 Capital team will be speaking at and attending a number of upcoming conferences and events. Please reach out if you are interested in connecting, or better yet - meet us there:
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